Busln&ss Own&rshlp: Starting a Small Busln&Jis
Abusiness that is owned,
and usually managed, by
Alegal form of business
with two or more owners.
Alegal entity with
authority to act and have
liability separate from its
BASIC FORMS OF BUSINESS OWNERSHIP
Like Donald and Susan Sutherland, hundreds of thousands of people have
started ne\\! businesses in the United States. In fact, more than 500,000 new U.S.
businesses are started each year.
Chances are, you have thought of owning your
own business or know someone who has. One key to success in starting a new
business is understanding how to get the resources you need. You may have to
take on partners or find other ways of obtaining money. To stay in business, you
may need help from someone with more expertise than you have in certain ar-
eas, or you may need to raise more money to expand. How you form your busi-
ness can make a tremendous difference in your long-term Sllccess. You can form
a business in one of several ways. The three major forms of
are (1) sole proprietorships, (2) partnerships, an
-Itcan be easy to get starte in your own
You canbegin a word
processing service out of your home, open a car repair center, start a restaurant,
develop a Web site, or go about meeting other wants and needs of your commu-
nity. A business that is owned, and usually managed, by one person is called
sole proprietorship. That is the most common form of business ownership.
Many people do not have the money, time, or desire to run a business on
their own. They prefer to have someone else or some group of people get to-
gether to form the business. When two or more people legally agree to become
co-owners of a business, the organization is called a partnership.
There are advantages to creating a business that is separate and distinct
from the owners. A legal entity with authority to act and have liability separate
from its owners is called a corporation. The almost 5 million corporations in
the United States comprise only 20 percent of all businesses, but they earn 81
percent of the total receipts (see Figure 5.1).2
As you will learn in this chapter, each form of business ownership has its
advantages-and disadvantages. It is important to understand these advan-
tages and disadvantages before attempting to start a business. Keep in mind
that just because a business starts in one form of ownership,
doesn't have to
stay in that form. Many companies start out in one form, then add (or drop) a
partner or two, and eventually become corporations, limited liability compa
nies, or franchisors. Let's begin our discussion by looking at the most basi
form of ownership-the sole proprietorship.